Siemens in a cost-cutting mode, to slash capex

Faced with a double whammy of depleting order inflows and profits, Siemens India plans to cut capital expenditure.

The company reported a loss of Rs 55 crore in the July-September quarter, against a profit of Rs 178 crore during the same period last year. Annual profit was down 50 per cent and now broking firms have cut the company’s earning estimate by 10-20 per cent for the next financial year, anticipating weak results.

“We have started our own cost reduction programme, aimed at improving profitability. The reason is uncertain business environment,” said Siemens India's managing director Armin Bruck, in an email response.

The company will be taking a series of measures to trim costs, strengthen core business activities, improve sales, and optimise the use of its facilities in line with its parent company’s strategy. It will also focus on its low-cost and high-technology ‘SMART’ products, which contributed 15 per cent of the order intake.

SIEMENS ANNUAL PROFIT (Rs crore)

2012

2011

2010

2009

343

845

827

1,044

Siemens follows Oct-Sep financial year

“SMART products today contribute 15 per cent to the order intake, compared to 10 per cent in 2010-11 and five per cent in 2009-10,” said Bruck.

The order inflow declined 17 per cent last year and revenue and margins were impacted due to project delays and cost over-runs. The company announced closure of its wind turbine manufacturing plant at Vadodara, booking a loss of Rs 120 crore. The energy and industrial division segment saw fewer orders and a dip in profits.

In its interaction with analysts last week, the management maintained the weak outlook to continue for near- to medium-term on the back of slow traction in large value business. It said that liquidity at clients’ end was impacting project execution.

In a note to investors, HDFC Securities said that it expects Siemens to report muted revenue growth for the next two years. It said margins would improve as a result of the company’s aggressive policy of recognising costs but double digit margins were some time away.

“The company's order book, too, is declining and I do not expect 10-15 per cent revenue growth,” said an equity analyst who tracks the company.” Exceptional items such as impairment loss due to closure of the wind energy plant and an adjustment of Rs 79 crore against the previous year's expense, impacted the result. Excluding that, the adjusted profit for the September-end quarter works to about Rs 65 crore,” the analyst added. Broking houses Edelweiss and Antique Stock Broking have cut Siemens’ profit estimate for the next financial year by 9.6 per cent and 20 per cent, respectively, anticipating lower revenue and margin pressure.

Bruck did not specifically comment on broking house estimates. “We do not make forward-looking statements. New investment announcements have been continuously declining for the past six quarters, due to issues such as slowdown in the economy, project delays faced by the customer, and high interest rates. However, we are confident that the positive steps by the government in implementation of the various reforms and other measures expected in infrastructure and power sectors (such as debt restructuring) would open up the economy,” said Bruck.